London Stock Exchange: UK firms can raise more money here than overseas

The London Stock Exchange (LSE) saw a record number of tech IPOs in 2013 with 36 companies raising over a £1 billion.

By
Sam Shead
| Jan 10, 2014

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The London Stock Exchange (LSE) saw a record number of tech IPOs in 2013 with 36 companies raising over a £1 billion.

And this year is set to be just as successful, according to Marcus Stuttard who heads up the UK Primary Markets and the Alternative Investment Market (AIM) at the 213-year-old exchange, which sits on Paternoster Square in the City of London.

“We would expect the sorts of volumes that we have seen over the last 18 months to continue,” he told Techworld this week. “Our forward look at the pipeline shows that it remains strong and I’m aware of companies [that plan to list] on both AIM and the main market so I’m very confident.”

However, the age-old question of whether London’s markets can compete with New York’s Nasdaq and the NYSE remains, with some experts claiming that tech firms can raise a staggering 300-500 percent more capital when they list on the other side of the Atlantic.

“I disagree with that as a generalisation,” said Stuttard, adding that there have been a number of recent tech floats in London that have been over-subscribed due to an overwhelming amount of investor support.

Meanwhile, Lars McBride, chairman of pan-European engineering firm Calder Group said at a start-up event in London last month that "funding in large amounts in the UK is still not plentiful.

"If you want more than £5 million in equity there aren't that many places to go for it," he said. "We don't have the benefit of large US market which has enabled funds to reach critical mass and the funds can become more specialist."

McBride suggested that Europe-wide venture capital funds should be established if UK companies are to get access to a similar funding pool to American start-ups.

But Stuttard claims there are a number of “very active” VCs and private equity houses in the UK and Europe, adding that many US investors back companies listing on UK markets anyway.

“I simply don’t accept that there is more capital available elsewhere for UK tech businesses," he said. “The other thing is we don’t just look at investors on London and US markets as one homogenous block of investors. Clearly, the US is a bigger market on aggregate, but a lot of those US investors are essentially US-domestic investors. We’ve repeatedly seen international businesses go to the US and end up essentially having to become US businesses in order to stay there."

Another factor that has led to some UK tech start-ups listing in the US, such as Candy Crush creators King.com, is the fact that they can float a smaller chunk of their business on the likes of the Nasdaq than they would have been able to had they listed on London markets.

London's new market

LSE and Tech City UK set out to address this issue last spring when they launched a new market called the High Growth Segment (HGS). The HGS, which is not exclusively for tech companies, is being sold as a launchpad for rapidly expanding firms that have a value of between £300m and £600m. It is designed to enable medium-sized companies that are too large for the Alternative Investment Market (AIM) but not yet ready for premium listing to raise capital while holding on to 90 percent of their firm's shares.

Previously businesses looking to float on the LSE were asked to make at least 25 percent of their shares, whereas they could choose to list just 10 percent if they listed on the Nasdaq.

However, not one single company has listed on the new market, despite the fact it was first announced nearly a year ago.

“There are no listings on HGS yet but we have seen a number of companies join the pipeline,” said Stuttard, before going on to reveal that companies looking to list on the LSE are waiting right up until their admission before deciding which market to IPO on.

Fisher, who was the CEO of the company from 2005 to May 2013, said there are pros and cons to listing in the UK. “I think some people would argue companies get better valuations in North America,” he said. “But you can also see plenty of examples in the UK where investors have backed digital stocks over recent months.”

Meanwhile, TechMarketView chairman Richard Holway argues that the HGS has been unsuccessful so far. “If it had [been successful] we would be seeing some IPOs by now and those like Shazam and Sophos wouldn't be thinking Nasdaq,” he said.

So while the London Stock Exchange, the UK government and Tech City UK are doing their best to facilitate the pain of listing in the UK through initiatives such as the High Growth Segment and the Future Fifty programme, it would appear that more needs to be done in order to convince certain firms that London is the best place for them to IPO.